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Commercial Legal Innovation

AI and Litigation Finance Growth Forecast

Digital Journal has released a new research report that forecasts an uptick in growth for the artificial intelligence (AI) market, specific to litigation finance. Digital Journal outlines that a worldwide exchange of business intelligence is beginning to formulate new ways to engage litigation finance tools, products and services. Meanwhile, Digital Journal floats new concepts on possible strains AI may place on litigation investors, as the dog-eat-dog battle continues for market share.  The report, titled Global Artificial Intelligence in Litigation Funding Markets, offers further insight into a multiyear span, forecasting sales volume(s) between 2020 and 2026. The report provides an in-depth outlook of historical metrics relating to the current market environment. Digital Journal notes a special caveat to the report’s nature specific to artificial intelligence and litigation finance.   Those seeking a preview of the report can find one here.
Commercial Fundraising

Burford Capital Promulgates New $360M Advantage Master Fund

Burford Capital proudly announced a new $360M Advantage Master Fund. A move that is expected to mitigate risk reward potential for the litigation finance juggernaut. Burford’s CEO Christopher Bogart says that the new fund will serve as a structural stopgap facility. Bogart highlights Burford’s uptick in demand for litigation facilities in the middle range.  UK Investor Magazine reports that Burford Capital plans to utilize Average Master Fund proceeds to expand investment in pre-settlement litigation products and services. Burford anticipates the new fund’s internal rate of return (IRR) to range between 12-20%.  The structure of the new fund is an advancement from previous arrangements, according to Burford. Meaning that the fund's investors will receive a flat 10% annual return, with Buford capitalizing on any additional proceeds.   Buford’s CEO says his commensurate fee structure exceeds a factor of 13%.
Commercial

2021: Burford Capital Posts $72M Loss and $1.1B in Commitments

Burford Capital’s group-wide commitments scored $1.1B in 2021 allocations. Meanwhile, net losses came to $72M for the year, a rather significant drop from 2020’s profit of $165M. Burford forecasted a 2021 loss range of $70-80M. The final figures are well in-line with industry expectations. The Law Society Gazette reports that even with 2021 global pandemic disruption(s), Burford managed $152M in total turnover, while 2020 saw $359M turnover.  Meanwhile, the firm calls attention to the ultimate legacy worth of its litigation portfolio, which is expected to generate robust value and shareholder return(s).  Burford’s 2021 operational revenue was $6M. Burford Chairman Hugh Wilson says with $239M in 2020 revenue, 2021’s data may read lower. However, with over $1.1B of ligation agreements booked in 2021, the firm is bullish on a bright future. Chairman Wilson went on to say that Burford generated ample cash flow(s) that exceeded expenditures during the term.   Buford announced an annual June dividend of 12.5c a share, subject to shareholder vote.    
Commercial

The UK’s Rise of ‘No Win No Fee’ Payment Schemes

A poll of 200 law firm partners by third party investor Harbour reveals 90% are under pressure to cut costs and offer clients expanded billing agreements. The poll also shows that 80% of those surveyed are planning to employ no win no fee payment schemes, with 89% expected to engage litigation finance products as a solution.    CityAM.com reports that 40% of those surveyed expect to cut firm expenses, with 37% planning to do so through legal technology. As with any business, driving down costs to maintain revenue generation is smart. CityAM cites the creativity of litigation finance to help lower case investment costs on the balance sheet, with greater opportunity to increase revenues as portfolio assets mature.   CityAM also notes that law firms are tracking a near 2x increase in time to collect receivables. March 2020 figures show a 23-day payment window, which has now increased in 2022 to a payment window of 39 days.
Commercial Regulatory Issues

Paris Court of Appeal on Third Party Funder Precedent

Tricky case law can creep in when least expected. With funders serving as members of the litigation team of advisors, some aim to include litigation investors as co-claimants. The Paris Court of Appeals approached one such instance citing the precedent that third party funders are subject to “exceptional circumstances” before being considered party to arbitration proceedings.  Paris’ Court of Appeals cites that just because a third party investor is involved in a case, this does not constitute exceptional circumstances.   Deminor Recovery Services (USA) Inc. profiles Senior Legal Counsel Mehdi Mellah’s take on the Paris Court of Appeals ruling. The argument is that if a third party funder is a co-claimant in arbitration, that does not necessarily translate to a ‘no’... However, it would take an exceptional scenario for the court to consider a circumstantial ‘yes’. Given the prevalence of third party funding in arbitration proceedings, those on the other side of the case are resorting to clever interpretations of case law as a defense mechanism.  With the fast pace and evolution of litigation finance, international arbitral organizations are updating arbitration rules and regulations. The guiding principle in altering arbitration rules appears to support greater transparency into litigation investor identities.  
Case Developments Commercial

The $300B Shock Verdict and Social Inflation  

A $300B damage award is serving as an example of shock verdicts driving the notion of social inflation. Preserving the ecosystem of litigation finance from shock verdicts is a priority for some in the industry.  Best Review’s monthly insurance magazine highlights the general trepidation of insurers being ‘on the hook’ for high dollar claims that are funded by third party litigation investors. There are those that argue obscene, high-dollar awards are a threat to the judicial system and therefore have the ability to diminish access to justice. Furthermore, litigation finance is blamed for insurance premium spikes–in some cases premiums have increased 25%.  The $300B shock verdict referenced above relates to trucking insurance. The award could potentially be the largest damages verdict in United States history. This, as the insurance industry has worked to clamp down on trucker insurance coverage. Best Review notes that insurance contracts for trucking operations previously allowed for $50M in coverage. Today, insurers have reduced many trucking insurance contracts down to only $1M coverage options.  Best Review references that savvy insurers continue to approach the problem of social inflation with a barrage of solutions, including lobbying dollars on tort reform. Overall, it would appear that insurers are targeting sophisticated third party investors who likely hold a variety of portfolios that include insurance claims.  
Commercial

Elite Litigation Finance Firms 

Pretentious as it may sound, not all litigation finance institutions are created equal. A myriad of common denominators between individual litigation investors tell a story of winners and losers upon close inspection. Just like every other industry, when choosing a litigation funder, quality can be found in industry rankings. That said, there are rankings for top litigation finance firms and also rankings for elite litigation finance firms. The differences between the two terms commonly relate to size rather than overall quality.   Case Works has collated a list of respected litigation funders with exceptional track records with a drive to lead regional rankings. When facing unique legal challenges, oftentimes it can be advantageous to select a boutique third party investor to organize a unique and innovative litigation funding agreement. Clever companies will recognize that the cost of capital in funding meritorious yet profitable legal action is a risk worth taking.  Check out Case Works’ list of seven elite litigation investment companies to learn more.
Commercial Regulatory Issues

Omni Bridgeway Research on Antitrust Law and Litigation Finance 

Trade restraints, fixing prices and monopolistic tendencies often breed the essence of unfair competition. Complicating the picture, cross-border litigation requires an increasingly sophisticated, techno-scientific approach to win potential multi-district damages. Omni Bridgeway published new antitrust research on litigation investment, defining the asset class as a meaningful financial instrument.   Omni Bridgeway’s insights outline four key research categories:   
  • Complexity: Antitrust lawsuits are commonly associated with governmental interpretation of jurisdictional mandates. Considering aspects concerning regulatory arbitrage, antitrust definitions may vary with respect to a multi-district approach. The complexities of antitrust litigation are real, and litigation funders are becoming a resource tool for clients looking to hire the best legal team to win a claim. 
  • Duration: Globally, antitrust matters are a multi year effort. Litigation investor blueprints are mindfully designed, keeping in mind realistic success timelines. 
  • Budget: Funding a winning antitrust litigation agreement is a high dollar phenomenon.
  • Award: Pursuing antitrust litigation incorporates the prospect of securing substantial awards. Omni Bridgeway’s research studies 60 cases with an average settlement of $500M.  
Omni’s concluding analysis begs judgmental scrutiny when selecting a third party investor to fund meritorious antitrust wins. 
Announcements Commercial Fundraising

BURFORD CAPITAL CLOSES NEW $360 MILLION PRIVATE INVESTMENT FUND

Burford Capital Limited, the leading global finance and asset management firm focused on law, today announces that it has raised a new $360 million private investment fund, the Burford Advantage Master Fund LP (“Advantage Fund”). The Advantage Fund focuses on lower risk, lower return pre-settlement litigation investments than we include in our core legal finance portfolio, targeting matters expected to produce returns in the 12-20% IRR range. The Advantage Fund fills the gap between the Burford Alternative Income Fund, which focuses on lower return post-settlement investments, and Burford’s core business. The Advantage Fund has a structure that rewards Burford more than traditional fund models for producing good performance: the fund does not have a traditional management and performance fee structure, but instead provides the first 10% of annual simple returns to the fund investors while Burford retains any excess return. Based on our internal modeling, Burford does better with this approach than a traditional “2 and 20” fee structure once its returns exceed approximately 13%. (If the fund produces super-normal returns for this level of risk, which is not expected, a level of sharing with fund investors would kick in.) A range of institutional investors made commitments in the aggregate amount of $300 million. Burford has made a 20%commitment, or a further $60million. The Advantage Fund’s investment period runs until December 24, 2024, with a multi-year harvest period thereafter under an American waterfall. Christopher Bogart, Burford Capital’s chief executive officer, commented: “Burford is still scratching the surface of the legal finance market. As we continue to respond to our clients’ needs, we have found unmet demand for products in the middle range where litigation risk remains but where the risk is anticipated to be lower for structural or other reasons. In response to this demand, we have created the Advantage Fund to match client demand with institutional investors seeking exposure to the uncorrelated cash flows of legal finance at a lower risk of loss with commensurate returns.” About Burford Capital Burford Capital is the leading global finance and asset management firm focused on law. Its businesses include litigation finance and risk management, asset recovery and a wide range of legal finance and advisory activities. Burford is publicly traded on theNew York Stock Exchange (NYSE: BUR)and the London Stock Exchange (LSE: BUR), and it works with companies and law firms around the world from its principal offices in New York, London, Chicago, Washington, DC, Singapore, Sydney and Hong Kong. For more information, please visit www.burfordcapital.com.